Business Auxiliary and Business Support Services Rendered to Foreign Entities Qualify as Export of Services: CESTAT Allows Appeal [Read Order]

The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside an order confirming a service tax demand of ₹68.59 lakh along with recovery of Cenvat Credit and penalties holding that services rendered to its foreign group entities qualify as export of services under Rule 3 of the Export of Service Rules, 2005.

The bench observed that the Commissioner had erred in interpreting the export provisions and relied upon interim orders that stood superseded by Larger Bench and Supreme Court decisions.

The appellant, YKK India Private Limited, engaged in the manufacture and sale of zippers and parts thereof, had been issued two show-cause notices for the periods 2006-07 to 2010-11 and 2011-12, demanding service tax of ₹68,59,980 and recovery of Cenvat Credit of ₹13,08,503 with interest and penalties.

The demands arose on four counts: classification of Business Auxiliary and Business Support services as non-export, levy on reimbursement of expenses, and denial of Cenvat Credit on input services used in trading activity.

The Tribunal comprising S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) held that the Business Auxiliary Services and Business Support Services provided by YKK India to its group companies abroad were consumed outside India and therefore qualified as export of services under Rule 3(1)(iii) of the Export of Service Rules.

The Bench relied upon the Larger Bench decision in Microsoft Corporation India Pvt Ltd v. CST, Delhi, affirmed by the Supreme Court on 6 May 2025, to conclude that services rendered in India but used by a foreign recipient for their business abroad are exports.

Further, following the judgments in Intercontinental Consultants & Technocrats Pvt Ltd v. UOI [2018 (10) GSTL 401 (SC)] and Hewlett Packard India Sales Pvt Ltd, the Tribunal held that service tax is not leviable on reimbursed expenses incurred for employees.

On the issue of Cenvat Credit, it observed that trading was not a service prior to 01.04.2011 and hence no demand could be raised for the pre-amendment period, relying on Ingersoll-Rand Technologies & Services Pvt Ltd v. CCE and Trent Hypermarket Ltd v. CCE.

The Bench ruled that the extended period of limitation was not invokable as the demand stemmed from audit observations, not from any suppression or fraud by the assessee. Consequently, the interest and penalties under Sections 76, 77, and 78 were also set aside.

Setting aside the Commissioner’s order in entirety, the Tribunal allowed the appeal with consequential relief, holding that the service tax demands and Cenvat recovery were unsustainable in law.

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